Why the UK base rate could rise next month

The publication of the latest batch of Bank of England minutes has convinced many market operators that the UK base rate has peaked. Charles Stanley's Jeremy Batstone is not so sure.

In the wake of confirmation that the Bank of England's Monetary Policy Committee (MPC) voted by what was the narrowest of margins (5-4) at its January meeting, to push UK base rates to 5.25%, sterling's sharp about-turn from a new 14-year high against the dollar (coming within a whisker of $2 / £1 at $1.9918 at one point on Tuesday 23rd January) encouraged many financial market practioners to take the view that the Bank had indeed acted with intemperate haste. We do not agree.

The Minutes of the January MPC meeting were accompanied by the first stab at UK Gross Domestic Product (GDP) growth over Q4 2006 which showed activity accelerating by a better than expected +0.8% quarter on quarter (forecast +0.7%), for 3.0% annualised and average growth for 2006 as a whole emerging a little above the 2.0%-2.5% long-term trend rate at 2.7%. In our view the psychologically important $2 / £1 is still a distinct possibility in the medium term although short-term trading is as likely to be dominated as much by sentiment surrounding the US Federal Reserve's 31st January meeting as the aftermath of continued obfuscation from the Bank of England.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.